European democracy falls victim to euro zone crisis

Italian Prime Minister Silvio Berlusconi's supporters wave Italian flags in front of his residence, Palazzo Grazzioli, the day after he resigned on Nov. 13, 2011 in Rome.
Gabriel Bouys

ATHENS, Greece — In recent days, technocrats have taken control of Italy and Greece, after debt-related political turmoil toppled the democratically elected leaders of both countries.

In Athens, the new prime minister is Lucas Papademos — a smart guy who is expected to keep Greece out of bankruptcy by staying above party politics. He was sworn in Friday, and tasked with securing a massive bailout. He replaced George Papandreou, who was chased out of office after proposing that Greek voters decide on the bailout.

In Italy, Prime Minister Silvio Berlusconi resigned on Saturday. He had lost his parliamentary majority earlier in the week, and borrowing costs on Italy’s massive debt skyrocketed to potentially unsustainable levels.

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On Sunday, respected economist Mario Monti was tapped to take Berlusconi’s place.

Markets have applauded these new leaders. Stocks rallied as Greece resolved its political crisis. And pressure on Italian bonds eased Thursday on news that Monti was the frontrunner to replace Berlusconi.

Investors welcome Papademos and Monti because they are viewed as fixers. French President Nicolas Sarkozy and German Chancellor Angela Merkel — who hold the reins of the euro zone’s bailout fund — like them for the same reason.

The catch is this: Nobody voted for them. They are unelected technocrats called on to do the sometimes messy task of governing.

It’s a short-term solution. New elections are expected in Greece, and likely later in Italy. But it’s leading some to ask whether the euro zone crisis is undermining democracy.

“We don’t have a real democracy here in Greece,” said Stratos Georgoulas, a sociologist at the University of the Aegean.

“People who believe Lucas Papademos is the best person to run the country are bankers, business people in the capital, and the media,” he said. “He’s not a politician. He’s a banker. He’s not one of us.”

The developments in Greece and Italy highlight concerns in some capitals that the European Union disregards the will of the people — especially as the euro zone crisis has worsened.

Observers including Trevor Evans, an economics professor at the Berlin School of Economics and Law, say a small group of power brokers are calling the shots.

“It’s a shift toward an undemocratic, authoritarian way of making decisions in Europe on economic policy,” Evans said.

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“Effectively, economic democracy has been suspended for Greece and Portugal and Ireland,” he said of euro zone countries that have received bailouts. “They have no voice in what’s going on. It’s going to be a real problem for legitimacy of the institution.”

The so-called “Frankfurt Group” of power brokers who have largely taken charge includes Merkel, Sarkozy, European Central Bank president Mario Draghi, IMF director Christine Lagarde, leaders of the European Commission, the Eurogroup of finance ministers and the European Council.

During the continuing euro zone crisis, they’ve structured bailouts that come with tough conditions, such as austerity measures that make recipient governments unpopular with their citizens.

Leaders who challenge them — even in the name of democracy — do so at their peril.

Papandreou, tired of pushing austerity measures with his party’s slim majority, called for a referendum a few days after completing negotiations on a $180 billion bailout package that includes a 50 percent write-off of privately held Greek debt.

In response, Merkel and Sarkozy called an emergency meeting with the Greek leader. A “no” vote on a referendum would send Greece into default and possibly undermine the euro itself.

On the eve of the meeting, Papandreou said his message would be that decisions must be made “which will ensure democracy prevails over any desires of the markets.” He later said ratings agencies “cannot have greater power than the parliaments.”

But when they warned that Greece could be kicked out of the euro zone, Papandreou scrapped the referendum. Having spent his political capital, he announced he would step down.

Papademos, an MIT-trained economist, is a former vice president of the European Central Bank. He’s also a past governor of the Bank of Greece, having overseen Greece’s currency switch to the euro. Now his job is to make sure parliament approves the bailout.

Video: Italians react to Berlusconi's end.

Even the tough-talking Berlusconi was taken to task by his European partners for failing to implement badly needed reforms, leaving the EU’s third-largest economy at risk of being unable to roll over its debt because of high borrowing costs.

The Italian billionaire barked back, in an Oct. 24 statement: “Nobody in the Union can appoint themselves administrators and speak in the name of elected governments and the peoples of Europe. No one is in a position to be giving lessons to their partners.”

But within two weeks, he was on his way out. His expected successor, Monti, a former European commissioner, will try to rebuild market confidence and oversee reforms.

While not elected, the new Greek premier and likely new Italian leader have financial expertise to steer their countries out of trouble — and would seem to be less beholden to political interests.

Another consideration is that it was elected officials who put their countries at risk in the first place. Before Papandreou took office two years ago, Greek officials lied to the EU about the country's debt, amassed by years of overspending. And then opposition parties refused to help Papandreou deal with the mess. In Italy, Berlusconi was unwilling to push reforms.

And in times of crises, referendums carry high risks. Voters in tiny Slovenia rejected pension reforms in a June referendum but the country's borrowing costs have risen ever since — potentially putting it on a path for a bailout. A snap election scheduled next month will bring a new government that, observers say, will have little choice but to impose the reforms that voters rejected.

Merkel, in a recent speech to the German parliament, said these are dangerous times. Unless contained, the crisis could cause a global recession and bring down the EU. She wasn’t apologizing for aggressive moves taken to protect the union.

There’s a “historical obligation,” she said, to protect Europe’s unification process begun more than 50 years ago “after centuries of hatred and bloodshed.”

“If the euro fails, Europe fails,” Merkel said.